How to Trade Dow Jones Index Futures

Futures bargains such as the E-mini Dow enable just about anyone to trade or invest in the Dow Jones Industrial Average (DJIA), the most iconic ancestry index in the world. The Dow tracks 30 blue-chip U.S. stocks from nine sectors, ranging from industrials to salubrity care to consumer staples. The Dow is often considered synonymous with “the stock market,” though the S&P 500 Index, which is comprised of 500 firms, more broadly represents the U.S. equities market.

Futures Trading Basics

A futures contract is a legally binding settlement between two parties in which they agree to buy or sell an underlying asset at a predetermined price in the future. The buyer presumes the obligation to buy and the seller to sell. And the value of the underlying asset—in this case, the Dow—will usually change in the meantime, designing the opportunity for profits or losses.

Some commodity futures contracts still require actual physical delivery of the underlying output in question, such as bushels of corn, but that is not the case with Dow and other financial market futures, which were designed to allow traders to easily hedge risk and speculate for profit. They can be settled for cash.

Key Takeaways

Dow Jones tomorrows contracts enable just about anyone to speculate on whether the broader stock market will rise or allied with.
Dow futures contracts can be traded on leverage, meaning you only need to put up a fraction of the value of the contract.
Dow futures markets get it much simpler to short-sell the broader stock market than individual stocks.

Trading the Dow With Futures Knits

Put simply, DJIA futures contracts enable traders and investors to bet on the direction in which they believe the index, putting the broader market, will move. That simplicity, the high trading volumes and the leverage available have made Dow futures a prevailing way to trade the overall U.S. stock market. About 200,000 E-mini Dow contracts change hands every day.

Using Leverage in Swap

One of the most attractive features of futures contracts is leverage. A trader can buy an E-mini Dow contract for about $5,500—and that days contract is worth $5 for every point on the DJIA. So if you buy when the index itself is at 29,000, and sell when it spanks 30,000, you’ve made $5,000 on the trade, nearly doubling your money.

Beware, though, that leverage edits both ways, magnifying losses as well as gains. A drop of 1,000 points on the Dow would nearly wipe out your $5,500.

Ready DJIA Futures Contract Sizes

There are now two Dow futures contract sizes available. The E-mini, or mini-Dow, contract, as notorious above, represents $5 per point on the DJIA. The Micro E-mini is one-tenth the size of the E-mini, and represents 50 cents per plan, with a margin requirement of only $550.

Opening a Futures Trading Account

The first step to trading Dow futures is to accessible a trading account or, if you already have a stock trading account, to request permission from your brokerage to merchandising futures. Most major brokerages such as E*Trade, TD Ameritrade, and Interactive Brokers offer stock index tomorrows. They generally charge a commission when a position is opened and closed.

Key considerations when choosing a broker are the artlessness of the trading platform, commission charges, customer service, and features such as news and data feeds and analytical weapons such as charts.

Select a Futures Trading Strategy

After selecting a broker and depositing funds into a interchange account, the next step is to download the broker’s

Test your trading strategy before you start risking your hard-earned change.

Once you know your trading platform, select a trading strategy and test it using a demo or trade simulator account. However begin live trading with real money after you have a strategy that is consistently profitable in simulated deal. This is even more important when trading with highly leveraged instruments such as futures.

Obtaining Long and Selling Short With Futures

In futures trading, you can

Futures Margin Requirements

When you open a arrangement, the broker will set aside the required initial margin amount in your account. To hold the position, you must testify sufficient capital in your account to cover the

Closing a Position

Close an open trade simply by entering an contrary order. For example, if you opened the trade by buying five E-mini Dow contracts, you would close the trade by selling them with the that having been said futures contract expiration date. If you opened by selling five contracts short, you would need to buy five to compact the trade.

It is also possible to partially close out of a position if you have more than one contract—for example, selling three of five obligations originally bought, leaving a position of two contracts open.

Trading Hours

Unlike the stock market, financial followings trade six days a week, Sunday through Friday, and nearly around the clock.

During regular U.S. stock bazaar trading hours, the DJIA futures contract price very closely tracks the index value.
When the U.S. carry markets are closed, the index futures contract value represents the value projections of traders for the following trading day. These ledges can be influenced by economic data releases or monetary policy decisions in other countries or geopolitical events.